Should you pay your employees for overtime?
Monday, August 25, 2014
When a company classifies an employee as exempt, it means the employee is exempt from minimum wage and overtime rules. The U.S. Department of Labor spells out different types of exemptions based on the duties the employee is performing. In other words, this means is if an employee is properly classified as exempt, the laws regarding minimum wage and overtime do not apply to them.
Managers, executives and owners often want to work around the overtime laws, so they classify employees as exempt without making more than a cursory effort to determine if the job duties really require an exemption. This is simply a huge mistake with the potential to cost the organization a lot of money and likely even more of a headache of time and resources spent remedying the situation.
One of the simplest issues starts with the language leaders use to describe the employee. Most commonly, employees are referred to as salary and hourly, with salary referring to exempt employees and hourly referring to nonexempt employees.
This can get tricky because many payroll systems require an hourly wage to calculate a salary, so essentially a salary employee could have an hourly wage. It can also get confusing because employers frequently represent annual salary on an offer letter for an hourly employee.
The easiest way to make sure everyone is talking about the same thing is to start by using the term exempt and nonexempt. Then take a look at your payroll system and offer letters to make sure they support the same terminology. A quick look at the DOL website description of what salary means may also help get everyone on the same page.
The lure of exempt employees
Even when leaders know the differences between exempt and nonexempt, it is easy to use a few clever justifications and decide that your administrative assistant should be exempt under the administrative exemption because she makes independent decisions. Or that the research associates in the office should all be exempt because they are required to have a master's degree in finance.
It is easy to understand that you want your admin there the same hours as you or that you expect your associates to be working 60-plus hours a week to prove they are worthy of promotion. However, it is much less easy to show that the job duties they are performing actually meet the exemption qualifications.
Conduct an audit
Don't think your department or organization is exempt from worrying about this because you are either too small or there are other departments and companies doing the same thing — neither of these excuses or the test of time are valid justifications to hide behind. (In the last six months alone, my clients dealing with misclassification audits from government agencies or related lawsuits from ex-employees have been under 15 employees, over 200 employees, a nonprofit foundation and an investment firm, to name just a few.)
At the least, start with a self-audit and determine whether you have properly classified the employees based on their job duties and the time spent working on each. And talk to your employment counsel — one quick conversation to ensure you are doing it right, no matter how much he/she charges per hour can save you so much money, time and headaches going forward.
Finally, if it seems something may be wrong, do not try to fix it yourself. Talk to your employment counsel about conducting a confidential audit. You may be able to use a consultant/specialist through their firm to do a proactive audit, implement remedies and protect the information discovered in the process. The bottom line is that an ounce of prevention in classification cases is always worth at least a pound of cure.
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